Japan Shares Drop Amid Concern Over Stronger Yen Following Fed

  • Fed holds off from raising interest rates, changes 2017 view
  • Stocks surged Wednesday on the BOJ decision ahead of holiday

Japanese shares fell from their highest level since June amid growing concern over profits at the nation’s exporters, after the yen rose as the Federal Reserve held off on raising interest rates.

The Topix index declined 0.2 percent at the close in Tokyo on Friday, trimming an earlier drop of as much as 0.8 percent. Japan stocks resumed trading after a holiday on Thursday, when global equities rallied after the Fed scaled back expectations for interest-rate increases. The yen jumped 1.4 percent against the dollar on Wednesday before paring gains. The Japanese equity measure had closed at its highest level since the start of June on Wednesday as financial shares rallied after the Bank of Japan refrained from making deeper cuts to negative interest rates.

“Even though globally the Fed’s decision to hold off from raising rates has been regarded as positive, the stronger yen is a source of concern for Japanese equities,”said Takashi Ito, a Tokyo-based equity strategist at Nomura Securities Co.

SecurityPercent ChangePrice
Topix-0.2%1,349.56
Nikkei 225-0.3%16,754.02
Yen-Dollar-0.1%100.90

The Fed opted to wait for further evidence of stronger inflation before raising rates, even as the economy showed signs of improving. It also dialed back the number of increases it expects in 2017. Three officials -- the most since December 2014 -- voted against Wednesday’s decision, up from one at the last meeting.

The Topix’s 2.7 percent advance on Wednesday came after the BOJ said it would move away from a rigid target for expanding the money supply, while seeking to control bond yields across different maturities. The central bank said its target for expanding the monetary base through asset purchases, previously set at 80 trillion yen ($780 billion) annually, may now fluctuate in the short term to enable policy makers to control bond yields. Governor Haruhiko Kuroda and the policy board kept the interest rate on a share of bank reserves unchanged at minus 0.1 percent, giving bank shares a boost.

Exporters Sink

Exporters including carmakers and electric-appliance manufacturers were among the biggest drags on the Topix Friday, while financial shares also slumped, unwinding some of the gains from Wednesday’s rally. Toyota Motor Corp. and Mazda Motor Corp. sank at least 3.2 percent. Mitsubishi UFJ Financial Group Inc. dropped 1.5 percent after soaring 7.4 percent on Sept. 21.

Trading volume was 16 percent more than the 30-day intraday average.

  • Dentsu Inc. fell 4.8 percent after the Financial Times newspaper said the advertising agency is holding talks with more than 100 clients to minimize damage after revelations it may have overcharged companies including Toyota. The company plans to hold a press conference this afternoon.
  • Lion Corp. rose 5.8 percent after Credit Suisse Group AG raised its rating on the household-products maker to outperform from neutral.
  • Matsui Securities Co. dropped 7.8 percent after saying it plans to pay a first half dividend of 13 yen a share, down from 25 yen per share a year earlier.
  • Human resource-related shares rose after Prime Minister Shinzo Abe pledged to overhaul Japan’s labor market in a speech to investors in New York. JAC Recruitment Co. and Human Holdings Co. each surged at least 12 percent.

Futures on the S&P 500 Index were little changed. The underlying equity gauge added 1.1 percent on Wednesday and 0.7 percent on Thursday, as global markets surged on expectations central banks across the world will hold off from tapering stimulus efforts. Odds for a rate hike in the U.S. by December stood at 59 percent as of Thursday.

“Given that we didn’t see yen weakness take hold after the BOJ’s monetary policy review, it’s not that surprising we’re getting some short-term selling,” said Satoshi Yuuzaki, an analyst at Takagi Securities Co. “For expectations for rate hikes in the U.S. to be rekindled, we need to confirm improvement in the fundamentals, and take time to assess numbers including jobs data.”

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